Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 6-year, 13 per cent loan with gross proceeds of €9,000,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 1 per cent of gross proceeds and will be amortized using a 25 per cent reducing balance method over the 6-year life of the loan. The company has a tax rate of 35 per cent, and the loan will not increase the risk of financial distress for the company.

(a) Calculate the net present value of the loan excluding flotation costs.

(b) Calculate the net present value of the loan including flotation costs.